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2022 (11) TMI 380 - AT - Income TaxDisallowance of Advertisement expenses u/s. 37 - primary reason for disallowance of advertisement expenses by the AO is that firstly, the assessee cannot be permitted to change its stand, wherein the original return, the assessee had treated the aforesaid expenses as capital work in progress and secondly, since the advertisement expenses were almost 4 times the turnover of the assessee in the first year of operations, the same are capital in nature - HELD THAT - Various Courts and tribunals have consistently taken the position that advertisement/brand building expenditures are revenue nature and further there is no concept of deferment of revenue expenditure in the Income Tax Act. In the case of Salora International Limited 2008 (8) TMI 138 - DELHI HIGH COURT the assessee claimed deduction of advertising expenditure of approximately Rs. 3.08 crores. According to the Assessing Officer, the expenditure was incurred for launching of its products. AO was of the view that such expenditure was of an enduring nature and, therefore, treated one-third as 'capital expenditure' and only allowed the two-thirds of the said amount as 'expenditure to the assessee'. The Tribunal held that there was a direct nexus between the advertising expenditure and the business of the assessee and that the assessee had to incur such expenditure to meet the competition in the Indian market for selling its products in India. It, therefore, allowed the assessee's claim. The High Court upheld the order of ITAT and held that advertisement expenditure for launching products is revenue expenditure. We are of the considered view that CIT(Appeals) has not erred in facts and in law in allowing the assessee s appeal and holding that the advertisement expenditure claimed by the assessee as revenue expenditure in the revised return of income is, allowable in the instant set of facts. Appeal of the Department is dismissed.
Issues Involved:
1. Deletion of addition on account of disallowance of advertisement expenses under Section 37 of the Income Tax Act. 2. Whether the Commissioner of Income Tax (Appeals) should have upheld the Assessing Officer's order. 3. Request to set aside the CIT(A)'s order and restore the Assessing Officer's decision. Issue-Wise Detailed Analysis: 1. Deletion of Addition on Account of Disallowance of Advertisement Expenses under Section 37 of the Income Tax Act: The Revenue appealed against the CIT(A)'s decision to delete the addition of Rs. 21,28,55,537/- on account of disallowance of advertisement expenses. The Assessing Officer (AO) had disallowed these expenses, claiming they were capital in nature since the assessee had initially classified them as "capital work in progress (CWIP)" in their balance sheet. The AO also noted that the expenses were significantly high, almost four times the turnover, indicating a capital nature. However, the CIT(A) allowed the appeal, stating that the advertisement expenses were rightly claimed as revenue expenditure in the revised return, citing various judicial precedents and the Supreme Court's ruling in the Empire Jute case. 2. Whether the Commissioner of Income Tax (Appeals) Should Have Upheld the Assessing Officer's Order: The Department contended that the CIT(A) erred in facts and law by allowing the assessee's appeal, arguing that the expenditure was for "brand building" and should not be allowed as revenue expenditure. The Department also criticized the CIT(A)'s order as being cryptic and failing to address the AO's findings. However, the CIT(A) provided a detailed analysis, referencing multiple judicial decisions that supported the classification of advertisement expenses as revenue expenditure, including the Supreme Court's rulings in Empire Jute Co. Ltd. and Alembic Chemical Works Co. Ltd., and the Gujarat High Court's decision in Core Healthcare Ltd. 3. Request to Set Aside the CIT(A)'s Order and Restore the Assessing Officer's Decision: The Department requested that the CIT(A)'s order be set aside and the AO's decision be restored. The Tribunal, however, upheld the CIT(A)'s decision, emphasizing that the AO did not challenge the genuineness of the expenses but only their classification. The Tribunal noted that various courts and tribunals have consistently held that advertisement and brand-building expenditures are revenue in nature and that there is no concept of deferred revenue expenditure in the Income Tax Act. The Tribunal cited several cases, including Salora International Limited and Core Healthcare Ltd., to support its conclusion that the CIT(A) did not err in allowing the advertisement expenses as revenue expenditure. Conclusion: The Tribunal dismissed the Department's appeal, affirming the CIT(A)'s decision to allow the advertisement expenses as revenue expenditure. The Tribunal found that the CIT(A)'s order was well-reasoned and supported by judicial precedents, and that the AO's disallowance was not justified based on the facts and legal principles applicable to the case. Order Pronounced: The order was pronounced in the open court on 04-11-2022.
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